That was illuminating. I love the way Max lets people tell their story.

“meltdown risk today is greater than in 2007″, Janet Tavakoli

Here in the southern US the loss of jobs is just starting to really hit. Early retirements at Shell and other petrochem plants. Many engineers losing jobs. Hours being cut. No way we can see anything but deflation.

Hi Stacy. It’s great to see you bring in Janet Tavakoli for an interview. Did my recommendation to you in an email have any influence in your decision to bring her as a guest?

As for how many derivatives there are out there, the bodies are buried at DTCC. They are the bookies for the Wall St. Criminals. Matt Taibbi has just come out with a new article in Rolling Stone that is getting into the whole “naked shorts” issues titled “Wall Street’s Naked Swindle”. Again it is the DTCC where the bodies are buried.

As the official bookies of the Wall St. Mobsters, DTCC knows exactly how many naked shorts there are. But surprise, surprise, DTCC is actually owned by the very same Wall St. banks – just like the Fed. It is a highly secretive organization that is apparently under no regulatory control – not even the SEC can get access to their books. Yet they play a highly important quasi-public role in the financial world.

Again, reminds me of the Fed. Instead of auditing the Fed, maybe Ron Paul should be pushing to audit the DTCC!

For more information on naked shorts until the Matt Taibbi article becomes available online, I suggest reading my article “Phantoms of the stock market” as a good starting place.

Wow
I thought Stacy was the only beauty in the World of Mad money, Max you got her phone number?

BTW She is WRONG!!!!!!!
“They” Will not allow deflation, “They” in the end will right off a large part of debt. What she can’t see is the Geo-political back drop to all this.

The CDO’s etc were “Make belive money”, the idea was that Wall St/ City of London would “Magic” this wealth out of no where & use it to buy or bomb their way around the World…………….Trouble is China etc sussed it!

Now Your see massive delation on local services like “IT” or Whores……….Massive inflation on food & oil.

You’re right, deflation is not in the cards. Already T-Bills are a toxic “asset” – and i use that term very fucking loosely – that no one outside of the central bankers themselves is buying, or you inflate and increase interest to 1980 levels or More, which brings the whole damn system to a grinding halt. At which point another Rape Artist, like Raygun, will demolish whatever else is left of the “welfare state” (and it’s debts) and try to re-constitute the Ponzi scheme for another 20 years or so. But this time, it’ll be 5 years, or 2 years…or even 6 Months…

It’s a pyramid with an ever-widening base but with Obleisk at the very top, it’s angles are increasing exponentially. Mathematically it MUST become so small as to eventually disappear: A minuscule elite minority at the top, a VERY thin “middle class” section, and a planetary scale base of ultra-poor.

Thank you for the interview. I noticed your readers have already posted some thoughtful comments.

In the first half of the interview, I misspoke. I meant to say that JPMorgan merged with WaMu (not Wachovia) and Bear Stearns. Shortly thereafter, I mentioned the Wells/Wachovia merger (Wachovia had already done the disastrous Golden West merger), so I hope your viewers caught it.

You probably noticed that in Chapter 12 of Dear Mr. Buffett I said we would have painful stagflation by now. I predicted inflation would be an enormous problem. I believe this will eventually occur, but I was wrong about how quickly we would be at risk for inflation.

We are still feeling the effects of a collapsing asset bubble. For the reasons I mention in the interview, I believe we are still at risk for further deflation. I explain the Ponzi scheme that inflated the debt bubble here: http://www.tavakolistructuredfinance.com/Fraud.pdf It was not limited to mortgage loans, but I use them as an example, because most people can relate to it.

Due to the opacity of banks’ balance sheets, I may be wrong again about the timing of deflation followed by inflation. The effects of our massive money printing could result in inflation much sooner than I think. But my current analysis of the scope of the bad loan problem suggests that we will are at much greater risk for further deflation, before inflation kicks in. I may revise that opinion if I get better information, and of course, this is just my fact-based opinion, and due to imperfect data, my analysis may be proven incorrect.

I won’t leave further comments at this time, but over the coming months there will be more developments. Before the end of the year, the issue of fraud, the regulatory failures, and the current lack of indictments will get much more public attention.

Too bad that the people who were calling for receivership of the zombie banks STILL aren’t being listened to. CNBC and all of the Wall Street cheerleaders wrote the idea off as “socialism,” so there was never an actual public debate about why receivership was the way to go. I have no illusions about Summers & Geithner–they knew. They both told the Japanese to nationalize their bad banks prior to Japan’s “lost decade.” Japan didn’t listen. And we seem hellbent on going Japanese. Max was right: the people with the bad ideas/those promoting the very actions and belief systems that got us into this mess to begin with ought to be yelled at until they break down and cry. (Then, they should be banished forever from public office and public life.)

Janet Tavakoli was extremely interesting. On the subject of derivatives, I think people make too much of their complexity. Yes, they’re complex. But if you understand the concept of a derivative then you understand its risk. The fact that they are complex is not an excuse for allowing these risks to accumulate. And when there has been fraud staring people in the face (Madoff) no one did anything about that either. It’s really a question of political will. There is no political will to alter the regulatory landscape or to prosecute these crimes or to challenge the ruling class in any way. That is as plain as day.

It looks like you are on the deflation camp. I just have a couple of questions that I really like to hear your opinion.

1) Assuming you are right, what do you invest in? US treasury Bill/Bond/notes must be a bad choice right? I assume you would hold cash/money in a deflation scenario, not USD or other fiat currency but really money, i.e., physical gold and silver. That would be it, nothing else, right?

2) The main argument from you and Janet to support deflation view seems to be the 600Trillion USD derivatives out there, which is 10 times the global GDP. Now assume GS wins them all, how do they expect to be paid? In USD? the FED would run out of paper.

And if they get all these USD, what do you think they would do with them? Sitting on the papers and claim victory over the world? I guess not. They know the paper won’t worth anything. To me, they would go out and buy real stuff, gold, silver, food, oil, energy, human, fresh air. etc. Wouldn’t that lead to inflation?

One of the foremost experts on structured finance and derivatives presents a holistic overview of not only the current economic fiasco, and in 10 brief minutes with Max Keiser she provides more succinct, unbiased and relevant information that most pundits are able to convey in years on and off TV, but also highlights the bigger problem of how the administration keeps treating the US public as a bunch of stupid infants, throwing paper blankets over raging systematic fires that are anything but doused.

Also very wise to get into this derivative matter with Janet Tavakoli. Also nice to see more ladies into the financial arena and I mean that in a positive non sexsistic way. There are even a lot of man who think that woman are better traders in a way.

Janet however dodged the question about the amount of the derivatives which is understanable cause nobody could answer that question accurately cause a lot is done behind closed doors as we all know. But it would be nice to have a questimation..

My questimation is that it’s getting closer to a quadrillion again since it is known that it increased from at least $600-$800 trillion.

You’ve not paying attention folks cause Janet is right about Deflation. What about the plummeting house prices as one very obvious example.

Consumer prices have fallen for six straight months from year-earlier levels, the longest stretch of declines since a 12- month drop from September 1954 to August 1955, according figures from the Labor Department. http://tinyurl.com/ydlw47z

I realize you have to keep out of the “Coincidence Theory Zone” to remain credible for the TV talking heads , but Catherine ( who used to be the Govt.’s Assistant Housing Sec. ) has stated – in her IRTA 2008 speech – that AIG is the money-laundering centre of the US Govt.
Maybe she would be an interesting person to talk to ? .. i.e. if you haven’t done so already.

Your interview with Max made 100% good common sense !
A great pity that such plain speaking and honesty is missing from the Main Stream Media !

PS:
AFAIK, only France24 are daring enough to let Max on TV these days – maybe you could pull some strings for him in the US !

Mentioned was the Raiffeisen Banking system.
There is a small bank in Germany that has bases it’s banking on this system.
They have only 3 products : deposits, loans and current accounts.

The Doc. mentioned that there are 350,000 derivative products on the market today … and all designed to relieve the customer of his money by paying fees to the banks.

The Raiffeisen system is not really a bank as we know it , but really a sort “Credit Club” where the workers put their money which can be lent out to the other workers for their projects.
It’s as close as you get to an honest banking system.

History of Raiffeisen Banking Group

The Raiffeisen Group banks dates back to mid-19th century when the first co-operatives and loan societies appeared in order to support farmers at a time of famine and economic breakdown.

Raiffeisen Group was founded by Friedrich Wilhelm Raiffeisen (1818-1888). As a mayor of a number of villages in the German Westerwald province in mid 19th century, he concentrated his efforts on helping peasants in their fight for survival, setting up charitable co-operatives.

Soon, however, F. W. Raiffeisen realised that the Christian principles of charity were not effective enough and that organised self-help would be more beneficial in achieving his goal. In 1862, he founded the first banking co-operative in Anhausen (Germany), which became a prototype for Raiffeisen banks.

The first Raiffeisenbank opened in Austria in 1886, and ten years later the total number of banks in Austria had reached 600.

Today, Austria’s Raiffeisen Banking Group is the country’s most powerful, with the largest retail banking network and approximately one-quarter of the domestic banking business.

That’s very gratifying, for ZeroHedge to recognise the contribution. And also for Janet to follow up.

Janet’s argument is very clear and rational, unlike most of the mystification of markets that’s presented as economics.

It reminds me of a lot of what Karl Denninger has argued since at least last autumn. And also what Steve Keen pointed out about the role of credit in collapsing demand, dwarfing that created by ‘stimulus’ measures.

All the best analysts essentially grasp what Marx explained about banking finance and derivatives in Chapter 29 of Capital Vol.3, and what he said in Chapter 30 about the collapse of fictitious capital values in any system of production based entirely on credit.

Like Janet, and Denninger (and Max), Marx pointed out this would be when massive fraud would come to light. Of course in a pre-fiat money era, Marx dismissed the notion of the state buying up all the derivatives at full value, to maintain the value of that fictitious capital.

Ch. 29: Component Parts of Bank Capital:
“With the development of interest-bearing capital and the credit system, all capital seems to double itself, and sometimes treble itself, by the various modes in which the same capital, or perhaps even the same claim on a debt, appears in different forms in different hands.[3] The greater portion of this “money-capital” is purely fictitious. ”

“In a system of production, where the entire continuity of the reproduction process rests upon credit, a crisis must obviously occur — a tremendous rush for means of payment — when credit suddenly ceases and only cash payments have validity. At first glance, therefore, the whole crisis seems to be merely a credit and money crisis. And in fact it is only a question of the convertibility of bills of exchange into money. But the majority of these bills represent actual sales and purchases, whose extension far beyond the needs of society is, after all, the basis of the whole crisis. At the same time, an enormous quantity of these bills of exchange represents plain swindle, which now reaches the light of day and collapses; furthermore, unsuccessful speculation with the capital of other people; finally, commodity-capital which has depreciated or is completely unsaleable, or returns that can never more be realised again. The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values. Incidentally, everything here appears distorted, since in this paper world, the real price and its real basis appear nowhere, but only bullion, metal coin, notes, bills of exchange, securities. Particularly in centres where the entire money business of the country is concentrated, like London, does this distortion become apparent; the entire process becomes incomprehensible; it is less so in centres of production. […]

It should be noted in regard to imports and exports, that, one after another, all countries become involved in a crisis and that it then becomes evident that all of them, with few exceptions, have exported and imported too much, so that they all have an unfavourable balance of payments. […]

It follows from the above that commodity-capital, during crises and during periods of business depression in general, loses to a large extent its capacity to represent potential money-capital. The same is true of fictitious capital, interest-bearing paper, in so far as it circulates on the stock exchange as money-capital. Its price falls with rising interest. It falls, furthermore, as a result of the general shortage of credit, which compels its owners to dump it in large quantities on the market in order to secure money. It falls, finally, in the case of stocks, partly as a result of the decrease in revenues for which it constitutes drafts and partly as a result of the spurious character of the enterprises which it often enough represents. This fictitious money-capital is enormously reduced in times of crisis, and with it the ability of its owners to borrow money on it on the market. However, the reduction of the money equivalents of these securities on the stock exchange list has nothing to do with the actual capital which they represent, but very much indeed with the solvency of their owners.”
—————-

The solution, is what Janet calls ‘taking the deflationary hit’ — recognising the losses. I think of it as a Bonfire of the Vanities.

To cleanse the system of the surplus fictitious capital (i.e. debt) that it’s choking on. That means dealing with the consequences of bankrupt financial institutions (more Lehmans), and the political, social and economic shocks.

Recognising the losses means dealing with corporate and individual speculators who have lost, not pretending they’re still winners by chaining others to debt now and in the future because they’ll have to pick up the loss instead.

@ steve…I think you have to reckon with the fact that one of the Fed’s assets is gold certificates, which are priced, as I remember, at $42 an ounce, and if we were to price them at market prices, the Fed’s leverage would look a lot less than it is now.”

While valuing the U.S. government’s claimed gold reserves at today’s Comex closing price of around $1001 per ounce instead of the government antique bookkeeping entry of $42.22 per ounce would indeed vastly expand the government’s monetary assets, it might not be enough to offset the liabilities and guarantees the government lately has taken on.

But the job might be done by revaluing the gold to $5,000 or $10,000 per ounce, as the British economist Peter Millar speculated two years ago might be necessary to prevent debt deflation: yet this is admittedly speculation.

What did Gramley mean by “…the Fed’s leverage”? That would suggest that the Fed not only owns “gold certificates” but also future contracts and options on futures. They might be big benefactors in a gold squeeze.

…Recognising the losses means dealing with corporate and individual speculators who have lost, not pretending they’re still winners by chaining others to debt now and in the future because they’ll have to pick up the loss instead….

@Phil and @ Harry: you both have it right…it’s a cultural war we are embroiled in..the productive economy where we all wake up to a world of limitations versus the derivative based WS econometrics of fraud and deceit which favors that their paper products ( @ $600 trillion -$1200 trillion worth ) be salvaged at the expense of the taxed population of 6+ billion worldwide…clearly the “cover-up” as Gerald Celente so aptly puts it continues,,,and the “financial coup d’etat”as Catherine Austin Fitts labels this also stays protected…Yesterday I viewed Mr. Grenspan on Bloomberg TV defend the derivative market and the possiblity that it be regulated and placed in an exchange as mostly unnecessary..as he continues t defend the insiders who he apparently still considers the only ones smart enough to self-regulate themselves…I was amazed that he was given any air time as he is clearly one of the bandits of this on going meltdown of the capitalism we all have grown up and loved. I also attended a birthday bash for my neighbors Dad who is a self admitted “communist”,,,well I tried to explain the same perception that today’s “capitalism” is at best “crony capitalism’ and based in fraud…and when I brought up Thorsten Veblen’s Theory of the Leisure Class..which was a turning point for me as he espoused that the bourgeousie wouldn’t violently overthrow the proletariet instead they “emmulated ” them and desired to be them..he only replied that some of the capitalist environment will go that way…well that was written before Bernace, McCluhan and the MSM mind control we all witness today..so thank you for today’s interview…it may take a series of international lawsuits to reach the core culprits who have taken down a financial world where transparency and honesty in the markets may once again prevail….to conclude :how loud a voice must we raise so that even the most resolute defenders of the system in place realize that only when the destructive entities( public and private) are cleared away can a refreshed revitalized economic recovery begin…in it’s place we are going to only possibly vilify the few “bad apples” whereas the entire structure remains…

I don’t think the rise in the Gold price is only about inflation fears, although that’s how people see golds use.
Gold is also what people are looking to for when the USD completely collapses, and possibly other currencies in the world eg TOB.
I believe that is what is really behind the gold push.
Wether it will go down before it goes up, that is the 64c question.
It used to be $64,000, but since this saying was invented the USD has lost that much Purch power.

Great interview btw Max.
Janet expresses herself extremely well and it is a pleasure to listen to an interview where BOTH parties understnd the issue.
In the MSM it is usually its neither, or one and the journo.
Ha!
Thanks for making sense.

I have just ordered Janet Tavakoli’s book and look forward to reading it. A thoughtful and balanced individual who seems prepared to accept there are many imponderables that could blindside detail predictions, whilst being confident of her overall thesis. Another excellent On The Edge.

Its all so fixed that you cant hedge against anything …..whatever seems a safe bet one week will crash the next….they are playing us like an accordian…..so its not a deflation or inflation its both…its an accordian economy

I still have difficulty listening to these arguments when they are presented as either inflationist or delfationist. One has to keep in mind that assets and money are very different. It is very possible that the inevitible Asset Deflation will be accomanied by a Monetary Inflation. If you think it is impossible, you don’t understand fiat currencies. There has NEVER been a monetary deflation with a fiat currency.

This might end up being the worst of both worlds. All of you assets will deflate (go down in value), AND the gov’t will inflate the money supply to the point of significant devaluation (or dislocation globally) or an all out currency crisis.

At the end of the day, even before the Credit bubble popped, the US would have had to intentionally devalue it currency by aboyt 50% in abotu 15 years in order to afford it unfunded liablilities. If the US dollar stays at it’s current relative value, let alone rises, kiss Medicare, Social Security, and the Military goodbye, it is too expensive.

Access The Max Keiser Podcast

Weekly Downloads, live Q & A Session and exclusive video posts from Max and Stacy